Japan’s parliament passed a landmark tax bill Friday, finalizing the legal framework to double the nation’s sales tax by 2015 as a step toward fiscal reconstruction. The upper house enactment of the contentious bill marks the end of Prime Minister Yoshihiko Noda’s tortuous 12-month road to raise the tax to 8% in April 2014 and 10% in October 2015. …The sales tax hike will be the first since 1997, when the rate was raised to the current 5% from 3%.

Wow, more than tripling the tax between 1997 and 2015. I wonder how long it will take Japan’s political class to boost the rate to 20 percent?

But that’s only part of the story.

Mr. Noda also had to promise to dissolve the lower house “in the near term” in exchange for…endorsement of the bill in the opposition-controlled upper house.

Wow, if I’m reading that passage correctly, it sounds like Prime Minister Noda is willing to lose power in order to impose this new tax. This shows an amazing amount of greed for new revenue.

However, the WSJ article also suggests that the tax is not a done deal.

The bill includes a provision making an “economic upturn” a condition for implementing the rate hike. The government refused to specify in the bill exactly what an upturn entails, and lawmakers have different interpretations. DPJ tax policy chief Hirohisa Fujii told Dow Jones that only an economic shrinkage of 3% or more should prevent the tax increase from taking place.

Isn’t that remarkable. This onerous tax hike can only go into effect if there’s an “economic upturn,” and one of the sleazy politicians from the ruling party is defining an economic contraction of -2.99 percent as meeting that test.

But if he’s smart, Mr. Fujii will grab as much loot as possible and emigrate. Japan’s long-term finances are a disaster, and the VAT increase is a pretty good sign that politicians have no intention of turning the ship of state before it rams the fiscal iceberg.

And now you’ll understand even more why I’m worried about the pro-VAT sympathies of Mitt Romney and Paul Ryan.

17 Responses

The VAT will also end up being just as distorted at other taxes, with some industries being favored and others being penalized. Politicians will identify what things the 1% buy (and they don’t) and tax the daylights out of them. Anyone who remembers the yacht luxury tax of the 1980s will know how that turns out (of course, Yacht’s from, say, Massachusetts, would be given a pass.)

If prices are shown tax excluded as with the Canadian GST there is an argument that a VAT/GST is a good thing as it puts the level of taxation right in peoples faces. Canada is in fact the one and only nation to actually reduce its VAT rate after introduction as it did back in 2006 and 2007. (Note: Canada is also the only nation to have the previously explained policy of tax excluded pricing. This is largely in keeping with long time North American pricing practice of pricing goods on a pre State/Provincial Sales Tax Basis). If the US Federal Government actually kept with existing practice at the Canadian Federal, Canadian Provincial Level, and US State Level again a VAT might be a better alternative to current personal and corporate income tax rates.